Transition might get bumpy>
The odd couple | Once-quarrelsome Qualcomm and
Ericsson decide they have something in common: faith in
CDMA and confidence it's going to be worth a bundle
The San Diego Union-Tribune
After a decade of wrangling, Qualcomm and
Ericsson have announced a truce that virtually
everyone agrees will benefit both companies --
and the entire wireless phone industry, as well.
It ends a long-standing lawsuit over who owns
patent rights to CDMA, the code division
multiple access mobile-phone technology
Qualcomm pioneered, and it ensures that both
companies can focus their energies on capturing market share and
developing products for the next century. Qualcomm and Ericsson also have
agreed to fuse a single standard of CDMA into future generations of mobile
communications devices. That means cell-phone manufacturers won't have
contend with a protracted fight between mutually exclusive forms of
technology, such as the Betamax vs. VHS controversy that plagued early
developers of video cassette recorders. Further, Ericsson will buy
Qualcomm's infrastructure division, an ailing business unit that has dragged
down Qualcomm's earnings for years. Yet, as executives toasted each other
and Wall Street sent [ Qualcomm ] 's stock price soaring with the
announcement of detente, deep scars remain. It might take months for the
healing to begin.
"No one's excited about working with the Swedes," says one engineer from
Qualcomm's soon-to-be jettisoned infrastructure division. "Most of us have
battled Ericsson for most of our professional lives. We fought the battles and
got the bruises. Now we have to work under their regime." Fueling the
bitterness is the fact those being transferred across company lines must
exercise their vested Qualcomm stock options -- or lose them. Ericsson
does have a stock-option plan of its own, but compensation details for the
transferred employees are being worked out, and in any case, Qualcomm's
stock last week was worth more than Ericsson's. In recent interviews,
executives from both companies talked about the end of the industry's
longest-running telecom holy war; about their past, present and future plans;
and about the daunting challenge of transferring part of Qualcomm's
talented-yet-laid-back work force to foreign rule. Qualcomm's founder and
chief executive, Irwin Jacobs, insisted that the infrastructure division, with its
1,600 employees, remain in San Diego. Refusal on that and other points
would have been a deal breaker, he says. The division makes cell sites, or
base stations, crucial and expensive equipment that keeps mobile phones
linked to central communications grids. Jacobs acknowledges that the sale is
jarring, ranking up there with M/A Com's takeover of his Linkabit enterprise
in 1980 and the layoffs of 700 Qualcomm employees in February.
Yet, Jacobs contends, those at the infrastructure division will have it better
under Ericsson. He notes that while exiled employees won't be able to keep
stock options, they will get to take advantage of Ericsson's retirement plan,
which he considers to be better than Qualcomm's. Some employees at the
division don't see it that way and have quietly threatened to file a class-action
lawsuit on the grounds they are being treated differently than previous
Qualcomm castoffs.
When Qualcomm spun off [ Leap Wireless International ] last year,
employees who migrated to the new company got to keep their stock
options. So, too, did those who walked over to WirelessKnowledge,
Qualcomm's joint venture with Microsoft.
"It's a discriminatory policy," says an infrastructure employee who requested
anonymity. "This is unethical."
Jacobs explains that WirelessKnowledge employees are considered part of
Qualcomm still and that Leap virtually works hand-in-hand with Qualcomm
to deploy CDMA-based phone service.
Stock options are motivational tools, dispensed on the premise that a
worker who owns a stake in the company will pledge fealty and thus work
harder. Employees are allotted a certain number of stock options set at a
current market price. Employees can sell or exercise those options after a
certain time, usually at a much higher value. Despite the recent truce,
Ericsson remains a competitor of Qualcomm. Conflict of interest precludes
one company allowing a segment of its ranks to own stock in a rival.
"There was concern that there be loyalty to the new company," Jacobs says.
o o o
{} {} {}
Try as it might, Qualcomm didn't have the size or market reach to make the
infrastructure division solvent, Jacobs says.
Unlike industry giants [ Lucent Technologies ] , [ Motorola ] or Nortel, the
much smaller Qualcomm was forced to the margins of the $9 billion
infrastructure industry and relied on selling base-station equipment in
unstable markets such as India and Russia.
When the Asian economic flu and economic collapse in Russia struck last
year, Qualcomm felt the shock.
Ericsson made its fortune with a rival wireless technology called global
system for mobile communications, or GSM, which boasts more than 130
million subscribers worldwide.
Ericsson disparaged CDMA when Qualcomm introduced it in 1989, but
when subscriptions of CDMA pushed past 23 million recently, the Swedes
grew interested in getting into the planet's fastest-growing mobile phone
technology.
In June 1996, Ericsson filed its lawsuit, claiming it owned patent rights to
CDMA, a claim Qualcomm thought ludicrous. Qualcomm stopped laughing
when Ericsson began calling CDMA a toy. Qualcomm filed a defamation
suit. Business considerations, however, began to overrule acrimony. The
world started work on developing technical specifications for a single global
standard of wireless mobile phones. Such phones will handle video
conferencing, high-speed Web surfing and will be used in almost every
major city on the globe.
Major carriers, eager to start developing services and products for the
so-called third generation, or 3G, mobile phones due sometime in 2001,
urged Qualcomm and Ericsson to settle their differences.
With the patent trial date looming this month -- then reset to June -- the
companies started talking about a settlement, then about a possible sale.
First the dialogue occurred via e-mail and phone calls. Then there were
face-to-face meetings in New York and, more recently, San Diego. The
deal wasn't sealed until a day or two before the announcement on March 25.
The presence of Ericsson executives walking the halls of Qualcomm
buildings gave rise to rumors that a sale or possible takeover was in the
works. Jacobs says that Qualcomm has no intention of selling any more
business units. Quite the contrary.
Without talking specifics, he plans to expand the company's relatively small
Eudora e-mail business, its OmniTracs global satellite positioning service,
and its newly hatched digital cinema business -- a venture Jacobs called
"very, very interesting."
Qualcomm has developed technology that can beam motion pictures via
satellite to digital projectors. The upcoming Star Wars movie will be the first
shown using digital projectors on four screens in two cities yet to be
announced.
With the patent lawsuit in the rearview mirror, Qualcomm now can afford to
explore other business opportunities.
"Qualcomm is always looking at new directions," Jacobs says.
o o o
{} {} {}
One new name appearing on San Diego radar is Ake Persson, Ericsson's
vice president of marketing and sales of radio systems.
Persson was the key deal broker who shuttled between San Diego, New
York and his home base in Stockholm, in the months and days leading up to
the agreement.
Persson will take over the infrastructure division, a force of some 1,600 San
Diego-area workers, as well as about 150 in Boulder, Colo.
Because of the legal dispute, Ericsson didn't make CDMA gear and, unlike
65 other companies, was unwilling to pay Qualcomm royalties to license the
technology.
That all ended late last month.
By buying Qualcomm's infrastructure division, [ Ericsson ] gains an almost
immediate presence in CDMA. The division will form the nucleus of
Ericsson's CDMA research and development and product lines. The
company says it will have CDMA-based mobile phones on the market
within a year -- and will pay Qualcomm royalties on present and future
iterations of CDMA. Ericsson, then, gives CDMA a massive distribution
vehicle in the near and long term. "We can take CDMA products to where
they (Qualcomm) couldn't," Persson says.
Persson, an avid hunter and skier, says the first order of business will be to
assimilate the infrastructure division into Ericsson, no easy task given the
cultural divide between the companies.
Sven-Christer Nilsson, Ericsson's chief executive, provided a glimpse of that
unease when he met with Qualcomm employees during an all-hands meeting
the day after the agreement was announced.
He was counseled to wear a formal business suit, a strange choice on casual
Friday, and stranger still at Qualcomm, where engineers and others usually
don jeans and T-shirts.
Nilsson says he has no intentions of imposing a strict dress code. "You dress
for the occasion," he says. "Not necessarily in a dark suit and tie, but you
follow the customs of your customers."
Nilsson says Ericsson delegates authority to the local level and characterized
the Ericsson work environment as an "accountability and consequence
culture."
Tackling the thorny issue of compensation, Nilsson is quick to note that the
true asset in the infrastructure acquisition are all those engineering minds who
know the innards of CDMA.
Salaries will remain attractive, Nilsson says. "We want people to stay with
us," he says. "Without talent it wouldn't mean much."
(Copyright 1999)
_____via IntellX_____
Publication Date: April 04, 1999
Powered by NewsReal's IndustryWatch |
